Cross-border shopping: It’s worth an extra night

David Johnston, THE GAZETTE03.15.2013

An empty shopping bag in a mall on Church St. in Burlington, Vt. Canadian shoppers often abandon bags when shopping south of the border, after putting on clothes they have just purchased and wearing them through customs.Ian Barrett
/ Ian Barrett

Aerial view of the recently expanded DestinyUSA, in Syracuse, N.Y. It is the largest shopping complex in New York State, and is projected to attract 30 million visitors annually, which would make it the second-busiest mall in the United States, after the Mall of America in Bloomington, Minn. Fifteen per cent of its customers are Canadian cross-border shoppers.

A giant boot sculpture outside the flagship L. L. Bean store in Freeport, Maine. The sculpture is a tribute to the company founded in 1912 as a boot manufacturer. It has since diversified, and is now an iconic American clothing and recreational-equipment brand.

Knowing that Canadians were now able to bring $800 of duty-free goods back into Canada after 48 hours in the U.S., my wife and I decided to do our Christmas shopping last December over a single weekend at an outlet facility in Manchester Center, Vt.

With our teenage son along for the ride, lured by the prospect of a Ralph Lauren shopping spree, we crossed into the U.S on a Friday morning at 10 o’clock and returned precisely 49 hours later.

There was no traffic at all at 11 o’clock on the Sunday morning at the St. Armand-Philipsburg/Highgate Springs, Vt. border crossing. As I slowed to a stop, I rolled down my car window and handed the Canada Border Services Agency guard our three passports. Inside of my own passport I had inserted the $260 receipt for our two-night hotel stay.

“What is the value of the goods that you purchased while you were away?” asked the guard.

“Twenty-one hundred dollars,” I said.

My wife had the receipts on her lap in the front passenger seat, in case we were asked for them.

“And what was the most expensive item that you purchased?”

“My wife ... a purse ... $150,” I replied, referring to a Kate Spade purse priced down from $350. In fact, we had two of them — one for my wife, and one for my sister.

I knew the operational purpose of the guard’s question. It was to find out if any one of us had bought one item worth more than $800.

That would have triggered a requirement to pay duty on the full amount of the purchase, not just the amount in excess of $800. For the $800 exemption cannot be shared among family members. In this respect, the rule is different than it is for Americans returning back into the U.S. after 48 hours in Canada. Although Americans are subject to the very same $800 duty-free limit by their own government, Americans have the right to share their exemption entitlements with family members.

But $150 for a Kate Spade purse was nowhere near $800.

“OK, thank you very much,” said the guard, as he waved us through.

Until last June, Canadians had been limited to $50 in duty-free purchases after a minimum 24-hour stay in the U.S, and $400 in connection with a minimum 48-hour visit. With the changes put in place last June by the Harper government, those limits are now $200 for 24 hours, and $800 for 48 hours.

There’s a much stronger incentive now, in other words, for Canadians interested in shopping to spend a second night in the U.S. on weekend short hops over the border.

The expanded time horizon has prompted many Montrealers since last June to start venturing a little farther south for cross-border shopping than they have traditionally. People are increasingly bypassing Plattsburgh, N.Y., or Burlington, Vt., in search of new shopping opportunities.

“We’re seeing a lot more individual travellers from Montreal, and also a lot more bus tours from New Brunswick and Prince Edward Island,” says Dot Seybold, general manager and marketing director of Settlers Green Outlet Village, the largest outlet operation in North Conway, N.H.

“I think the strength of your dollar relative to ours, and the duty-free changes have had a significant impact.”

Other major shopping hubs are reporting the same increase in Canadian traffic.

“Anecdotally, we can report that we’ve seen an increase in sales to Canadians,” says Janet Dutson, executive director of FreeportUSA, the outlet-shopping consortium in Freeport, Me., where the anchor retailer is the iconic L.L. Bean store. “Innkeepers report that Canadian shoppers are aware of the new (duty-free) limit and have been shopping to meet it.”

The mother of all retail behemoths within a half-day’s drive of Montreal is the former Carousel Center in Syracuse, N.Y., directly south of Gananoque, Ont. Last spring it underwent an 850,000-square-foot expansion and rebranded itself as DestinyUSA. With a new IMAX theatre, go-kart racing rack, bowling alley and nightclub, DestinyUSA is now the largest mall in New York State — with 15 per cent of shoppers now coming from Canada (mainly Ontario). At its current rate of customer growth, it is approaching 30-million visitors annually, which will make it the second-busiest mall in the U.S. after the Mall of America in Minneapolis, Minn.

A lot of so-called cross-border shopping is really just shopping done by Canadians returning home from work trips or family vacations. Shopping isn’t the primary reason why they go to the U.S. If they go to South Florida for spring break, it’s because of the beach, not the malls — although they will check out the malls. And if they go to New York City, of course they do some shopping in Manhattan.

Where Canadians tend to travel, then, usually helps shape the kind of shopping they will do — both casual shopping and more intentional buying.

I know that in my family’s own case, we like to go to Cape Cod every summer, and along the way we discovered the L.L. Bean factory outlet in Concord, N.H. Now we never return home without shopping there. As it is an outlet for excess product and slightly damaged goods, there’s always a clothing staple or two that can be found there at an exceptionally low price — as in, $17 for a pair of pants.

It was while surfing the Internet for other shopping options to and from Cape Cod that my wife discovered the intriguing Manchester Designer Outlets in Manchester Center, a town in southern Vermont. It was a little bit off our beaten path between Montreal and Cape Cod. But the more we read about the place, the more we liked what we saw — and so we went there straight from Montreal for Black Friday weekend in 2011, and then again last December for our Christmas shopping.

MDO isn’t a single mall, like DestinyUSA. Nor is Manchester Center a hub for a collection of malls, like North Conway is. Instead, it is a network of small shops embedded into the village itself around Depot St. MDO’s specialty is high-end brands like Yves Delorme and Giorgio Armani. I like the Brooks Brothers outlet. My wife likes Kate Spade for accessories. For our 17-year-old son last December, Ralph Lauren was the draw. Just 10 minutes in the Michael Kors boutique was all we needed to find heavily discounted Yuletide gifts for three brand-conscious nieces in Toronto.

Shopping aside, there’s plenty to see and do in and around Manchester Center. My wife and I like spending time in the independent Northshire Bookstore. People who like skiing are attracted by the three ski hills in the area. As for American history, the prime attraction in the area is Nildene, the former estate of Robert Todd Lincoln, the only one of Abraham Lincoln’s three sons to survive to adulthood. During our first visit in 2011, my wife and I took a side trip over the Massachusetts border to the Norman Rockwell Museum in the town of Stockbridge.

Shopping is part of the fun, not all of the fun. I suppose people who have taken to shopping in Freeport, North Conway or Syracuse have similarly discovered fun things to see and do besides shopping. It could be the ocean (Freeport), skiing and hiking (North Conway) or lake recreation (in the Finger Lakes district outside of Syracuse). Whatever it is, it’s what makes the overall visit more enjoyable.

There’s no doubt the new duty-free exemptions are a threat to Canadian retailers. The Canadian Retail Council said so last summer very explicitly, after the exceptions were introduced in the 2012 federal budget. But the competitive landscape is changing. Last November, Canadian retailers fought back on so-called Black Friday with some very heavy discounting, and experienced exceptionally high sales volumes.

Black Friday is the busiest retail day of the year in the U.S, the day after American Thanksgiving, when exceptional bargains are offered as a way to kick off the Christmas shopping season.

With new duty-free limits in place since the previous June, Canadian retailers had feared a major drain of Christmas shoppers to the U.S. — people like me. Ivanhoe Cambridge, the property developer owned by Quebec’s Caisse de dépôt et placement, organized special Black Friday events at malls that it owns all across Canada — everywhere in the country, that is, except Quebec. The reason: Quebecers don’t do as much cross-border shopping as Canadians outside Quebec do. It’s not as big with francophones as it is with anglophones. Many Quebecers have never heard of Black Friday.

Even so, many Quebecers know, as do many Canadians, that retail prices are generally higher in this country than they are in the U.S., and often even for the very same item. A Canadian Senate report released last month on the unfavourable gap attributed it to a number of factors. Weak overall competition in the Canadian retail market was cited as a major factor. Because competition is weaker, profit margins have been traditionally higher — with higher margins reflected in higher retail prices.

There are other factors, to be sure, among them tariff policies. But here’s the thing: higher margins in Canada are attracting more American retailers to Canada. The Target chain is about to open up in Canada. Wal-Mart is already well-established — and expanding. Even among more specialty retailers, there is movement northward. Vermont-based Ethan Allen, the furniture and design retailer, opened a store last year in downtown Montreal, its 10th in Canada.

And so while cross-border shopping is popular today with Canadians, it’s far from certain that it will be as popular five or 10 years from now, after Canadian retailing becomes more competitive — especially if the value of the Canadian dollar falls back to a more historic average of 85 cents U.S.

“From what I was able to see, Canadian retailers were extremely successful last November on Black Friday and Cyber Monday (i.e., the Monday after Black Friday, a day devoted to deep online retail discounting) in keeping business in Canada,” said Ran Ravitz, general manager of Red Flag Deals, a Toronto-based online Canadian bargain-hunting site. “In the long term, I think you are going to see Canadian retailers fighting really hard to prevent traffic from moving to the U.S.”

For U.S. shopping destinations within a short hop of Montreal, then, the implications are clear. They will have to offer Canadian shoppers something other than just low prices. Variety will be important, both in terms of retail brands, and things to see and do unrelated to shopping around these shopping meccas.

“There’s no doubt about it — the main thing is that the overall experience will have to be fun,” says Lana Hauben, vice-president of marketing of Manchester Designer Outlets.

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